Merger of BAE and EADS 'close to collapse'

BAE plane National governments are keen to protect their strategic interests

BAE and EADS could well abandon their plan to merge tomorrow, depending on the outcome tonight of make-or-break talks between the British, German and French governments.

It all hinges on whether France and Germany agree to significantly limit their power to influence the merged companies.

According to well-placed sources, right now it looks unlikely that they will agree to the terms demanded by the British government and by BAE and EADS.

In which case, the deal will collapse.

There are three so-called red lines for the companies and for the UK government.

First, that neither France nor Germany should ever own more than 9% of the enlarged group.

Second, that there should be no formal agreement between the French and German governments that they would vote their shareholdings together or in concert.

Third, that directors appointed by governments to a planned new "national security board" - designed to protect the security interests of countries in which the merged group has big operations - should not sit on the top board of the merged group.

I am told that France and Germany want their representatives to also sit on the holding company board.

"There must be no interlocking directorships," said a source.

Right now, getting guarantees from France and Germany on all this is proving impossible, but that could change in the course of the night, I am told.

The British Prime Minister David Cameron is being kept abreast of events.

BAE has a deadline of 17.00 BST tomorrow to decide whether to ask the UK Takeover Panel for an extension of two weeks to the allotted time for negotiating the merger. BAE's board is planning to make its decision tomorrow morning, having reviewed tonight's inter-governmental talks.

My sense from those close to the negotiations is that the collapse of the deal is the most likely outcome.


A source close to inter-governmental negotiations on EADS's plan to merger with BAE Systems has told me "there was no help from Germany overnight".

In other words, there still appears to be an insuperable obstacle to the deal, which would create the world's largest defence and aviation business, worth around £28bn.

As I explained last night, the boards of the two companies will call the whole thing off, unless persuaded that France and Germany will significantly curb their ownership and control of the enlarged company.

Talks between the British, German and French governments are expected to continue this morning.

But it is increasingly likely that the boards of EADS and BAE will decide to kill the deal, before today's 5pm deadline for requesting an extension to the negotiations.


My hunch is we will get statements from BAE and EADS around lunchtime or shortly after saying merger is off. Boards will discuss shortly before. The worry in both companies is that the German government is not bending.


BAE/EADS deal is dead, I have learned. Boards have decided. I will be interested to see what statements say about possibility of trying again in six months.

The reason that they killed the deal is they learned that the German government is opposed to the merger in a fundamental sense.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 34.

    If only future conflicts could be resolved by high tech machinery like the end of the internal conflict in Libya. The suicide belt has been the weapon of the last century and not the hydrogen bomb. The Typhoon costs £63,000 per hour of fight due to depreciation rather than fuel or pilot cost.

    Put the money into intelligence and education rather than the boot.

  • rate this

    Comment number 33.

    Sorry to keep drone-ing on:

    Nigel Whitehead, group managing director at BAE said "The UK is as advanced as the US in development of UAVs."

    There's always money for war, it stimulates economies you know ...

  • rate this

    Comment number 32.

    BAE = defence industry heavy with massive foot in door to lucrative US military spending.

    EADS = civil heavy.

    Maybe they need each other, maybe not.

    The fact is that as long as humans are on earth there will always be wars and the UK is lapdog to US Foreign policy. Ergo they'll do fine with or without EADS.

    Unmanned civil.

  • rate this

    Comment number 31.

    #30. mr_market

    Capital ships are a thing of the past for the UK.
    How many UK aircraft carriers will actually be commissioned?
    With/without aircraft? US made...

    There is no money.
    There is no appetite for them either.

    Drones are the future.

    But does BAE have the technology?
    They will have to play catchup.
    It'll cost.

    Will the UK government simply buy abroad.

  • rate this

    Comment number 30.


    UK will always spend money on defence and given that the taxpayer subsides BAE it will always award contracts to BAE.

    The US spends $700bn a year on defence and BAE has a preferred contract.

    As USA's lapdog the UK will get some middle east deals, see Kuwait, Iraq, Saudi, UAE, Israel.

    Then there's Libya, plenty of IOU's on all those cruise missiles we lit for them ...

  • rate this

    Comment number 29.

    BAE are just your typical UK defence contractor.

    Without a home market now.

    And the middle east market is slowing and being snapped up by the US anyway.

    What market is left?

    South america?
    That's in the US domain.

    The Chinese are making big inroads there.

    Which big hitter will be batting for BAE?

    And don't even mention bribes. Inducements.

  • rate this

    Comment number 28.

    25&26 there are pros and cons. Certainly BAE are not about to "whither and die". As 26 points out, their profit was the same as EADS this year. Its why they got 40% of the merger with only 20% of the staff. Defence is very profitable. But, as military spending is dropping, civil aircraft sales are rising. Who are BAE? The largest defence company in the EU with a signif US military market!

  • rate this

    Comment number 27.


    BAE have a preferred bidder agreement with the US defense industry. Take a look at spending on defense by country and tell me that European spending on defense is important to defense:

    The French undercut us on the JSF deal with India recently.

    This deal is about hedging bets on civil versus defense spending.

  • rate this

    Comment number 26.

    @25. prudeboy

    How will BAE die without this takeover, both make the same profits and BAE has massive room for exports while eads can't really grow when between them and boeing they got the civilian aircraft business tied up.

    EADS needs BAE especially with the most advanced subs n destroyers in the world and F-35. Germany n france never gave their military contracts to BAE anyway so no love loss

  • rate this

    Comment number 25.

    Some people will no doubt be cheering.
    You have to realise the staggering jobs and technology that will be lost.

    Because without this tie up BAE will be stitched up.

    The UK cannot support BAE on its own.
    And what in it for the EU to support them?
    The EU will be buying from EADS.

    BAE will wither, die.

    Other markets will simply be taken away by EU and US companies.

    BAE? Who are they? Small fry.

  • rate this

    Comment number 24.

    Its hard to avoid the fact that the large EU economies are only interested in EU economic consolidation when their national champions take the EU role. FRA STILL protects its utilities and should have been fined over 10yrs ago!!! Whilst its companies draw on home monopoly resources to buy up UK utilities etc. FRA, GER etc are extremely protectionist whilst the UK is by far the most liberal.

  • rate this

    Comment number 23.

    22. What you say is largely true. The UK is amongst the big arms exporters.10+ yrs ago the EU committed to consolidation and an EU arms champion. As the largest, BAE embarked on this and the GER gov deliberately blocked their merger with DASA. To avoid further advances DASA, CASA and Aeroespaciale united to form EADS and have argued over where the HQ should be etc.since. See my earlier comments.

  • rate this

    Comment number 22.


    The UK has a tiny armed force with minuscule purchasing needs for materiel - we cannot afford the cost of running our own armaments industry. We MUST engineer a competitive European industry.

    Remember, our whole army would last under a week on the Somme. Stop your hankering after past glories and live today in today's circumstances.

    We need a European army, if we are to have one at all!

  • rate this

    Comment number 21.

    How's it ok to call me a 'right wing extremist'?

    That's far ruder than what I wrote.

    And I was just as factually accurate. Damn socialist conspiracy theorists!

  • rate this

    Comment number 20.

    waste of time and money. the only one to benefit will be.....

    lets think,

    not the employees as I guess lots of them will be made redundant.

    mainly just the shareholders and other greedy people

  • Comment number 19.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 18.

    #15 Comrade ogilvy & additional pseudonyms.

    So you are going to log out and log in again with each of your different BBC Blog identities to add a minus rating to each of my comments and a plus rating to each of the other of your own comments under the different pseudonyms.

    Very smart indeed. Good night.

  • rate this

    Comment number 17.

    13. Fleche - Try refuting what is being said or even better provide evidence for your points rather than just wild conspiracy theories.
    Do a bit of reading about the BAE-DASA deal and EADS tie up and the strong GER and FRA political influence. So, pointing out the FRA and GER govs will not give up control is not crazy.
    If your the best opposition the Tories have even Boris could walk it.

  • rate this

    Comment number 16.

    this is just another one of those stupid European things. Everything was working ok, people were employed and money was being made.

    I know! Lets merge this and that, create the other, make some new rules everyone has to obey and it will be so much better!

    Stupid Eurocrats. Idiot Eurocrats.

    Go away - you are surplus to requirements.

  • rate this

    Comment number 15.

    Fleshed Oar

    Very good. I'm a right wing extremist!

    Did it occur to you that my negative score probably reflects the general view that I wasn't being sufficiently patriotic?

    Ho hum.


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